To increase the contribution margin a firm must either _____ or _____.
A) Increase its sales price; increase its fixed cost per unit.
B) Increase its sales price; decrease its variable cost per unit.
C) Increase its sales price; decrease its fixed cost per unit.
D) Increase its variable cost per unit; decrease its fixed cost per unit.
E) Decrease its variable cost per unit; decrease its fixed cost per unit.

Question

Quizplus · Accepted Answer

The contribution margin is calculated as sales revenue minus variable costs. Therefore, increasing the sales price or decreasing the variable cost per unit will increase the contribution margin. Fixed costs do not affect the contribution margin per unit because they remain constant regardless of the number of units produced or sold.

To Increase the Contribution Margin a Firm Must Either _____